CACEIS NEWS 40 EN

Fine tuning the Swing Pricing service No. 40 - January 2015 - caceis news 5

5 YEARS’ EXPERIENCE IN SWING PRICING Drawing on its experience in managing Swing Pricing for its Luxembourg clients, CACEIS has played an active role in the prepa- ration of AFG’s recommendations on the topic 2 , and has adapted its systems and processes in order to offer its French clients Swing Pricing solutions. Swing Pricing is implemented via the Swing Factor, with or with- out a threshold. These parameters (Swing Factor and thresholds) can be adjusted, according to the defined frequency with clients (usually once a quarter) which en- ables asset managers to tune them precisely to their management styles and to market conditions. In addition, the procedure used by CACEIS allows Straight Through Processing (STP) and does not in- troduce any additional exchange of data with the client as net invest- ment information is gathered by CACEIS directly from the Transfer Agent, whilst the fund manager validates NAV in the same way irrespective of whether Swing Pricing is used. CACEIS is enhancing its fund ad- ministration offering to support its clients by fully meeting their needs and ensuring that they have effec- tive and adaptable solutions to help protect their investors from market conditions 1 Swing Pricing report, ALFI, February 2011 2 Charter of good conduct in Swing Pricing and adjustable fund subscription/ redemption charges 2014, AFG

mance. There can be a sizeable dif- ference between apparent market conditions and the actual prices for assets sold. Net asset value (NAV) may therefore prove to be overes- timated. This valuation difference, plus the transaction costs involved (tax, commissions, etc.) will only be reflected in the following valu- ation and will thus be borne by long-term investors. Swing Pricing was authorised in 2001 by the FSA in the United Kingdom and has gradually taken hold elsewhere, most notably in Luxembourg and Switzerland. The method has established itself as an effective way of protecting long- term investors. In 2011, at least 15 of the 30 biggest asset management companies in Luxembourg had ad- opted Swing Pricing 1 and the trend is towards more widespread use. These experiences have demon- strated the effectiveness of the method in the event of difficult market conditions. Swing Pricing has therefore proved itself more acceptable commercially than oth- er anti-dilution methods such as subscription/redemption charges, whilst at the same time accurately passing on the effects of transac- tions to those investors changing their positions. However, frequent swings can lead to significant vola- tility in NAV, particularly when the direction of net investment chang- es between two valuations. The method has therefore been refined through the use of Partial Swing Pricing, which helps limit volatil- ity whilst at the same time retain- ing the effective protection offered by the method. A METHOD USED WITH SUCCESS ABROAD

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S ince the end of June 2014, the AMF has authorised the Swing Pricing mechanism in France. This brings a new tool to asset management companies, al- lowing them to protect long-term investors and improve equality be- tween investors. Against a background of increas- ingly liquidity risk in bond and small cap markets, significant fund redemptions can have a substantial negative impact on fund perfor- Pricing expertise when seeking to introduce this approach in France. Asset management companies benefit from CACEIS’s Swing ERIC LOFFICIAL, Head of UCITS accounting team, CACEIS

Focus

Swing Pricing consists of adjusting the net asset value applied to subscriptions and redemptions as a function of the direction of net subscription at the end of the day. The Swing Factor: is calculated on the basis of transaction costs and volatility effects. NAV is increased by this factor in the event of net subscription, and reduced by it in the event of net redemption. Repricing: for bond assets. Valuation will be based on ask prices when there is net subscription and on the bid prices when there is net redemption. Partial Swing Pricing: Under this method, Swing Pricing is fine-tuned by the addition of trigger thresholds, set so that the Swing is only triggered if net subscription can be covered via the fund’s cash holdings, without the need for asset transactions. The Swing Factor may be symmetrical (a single factor applied upwards or downwards depending on the direction of net subscription) or asymmetrical (different Swing Factors for net subscription and net redemption).

OLIS: Find out about the new version

The OLIS interactive transaction site gives CACEIS clients a graphical and customisable view of their data. S ince November 2014, CACEIS's clients have been enjoying the benefits of a new version of the OLIS transaction website, with rapid access to the

information and improved viewability thanks to a more spacious design. New functionalities are available at all times from any type of fixed or mobile device, with touchscreen enabling users to interact.

cash, treasury, fund administra- tion, depositary, monitoring of fund distribution network, performance measurement and risk analysis. Previously available functionalities are kept, and clients can maintain their existing usage pattern while en- joying greater flexibility. In addition, they benefit from online financial information, detailed descriptions of local markets and information es- sential to their order placing, such as deadlines for instructions. The tab- based display allows them to per- form simultaneous searches and data

reproduction operations. Clients can interact with their Relationship Manager by sending inquiries about the transactions on display.

mances and thus demonstrate the ad- vantages of their strategy.

Mobile access enables asset manag- ers to send urgent transactions when travelling, such as validating net as- set values from mobile handsets with the help of new functionalities. OLIS offers additional services: re- al-time reporting, covering all types of assets and instructions, download- able in several formats. The transac- tion website is available 24/7 in a totally secure environment

FUNCTIONALITIES FOR ASSET MANAGERS

A COMPREHENSIVE INTERACTIVE RELATIONSHIP

With OLIS, clients benefit from tools for analysing their assets: up- to-date accurate information, intui- tive functionalities, graphics and a wide access to data to facilitate their decision-making. They can rapidly consolidate the information of their choice, monitor and analyse perfor-

From the home screen, users have better visibility over and more direct access to all the information asso- ciated with their relationship with CACEIS: custody, middle-office,